THE PAYMENT ECOSYSTEM

AT A GLANCE: THE PAYMENT ECOSYSTEM 1 AT A GLANCE: THE PAYMENT ECOSYSTEM

AT A GLANCE: THE PAYMENT ECOSYSTEM 1 Payment ecosystems is a term that typically evokes complexity and confusion among novices and professionals alike. Terminology, networks, and regulations are some of the factors that create and foster this less than positive perception. The reality is that payment ecosystems are relatively similar to a well-oiled machine with many moving parts that rely on each other to operate efficiently. At its core, the ecosystem consists of a network of participants who communicate financial information across one another. The primary problem is that they don t all speak the same language and often have unique rules, which can add to the complexity. For merchants, this added distraction can hinder you from staying focused on your core business and force you to spend time and resources trying to understand (or troubleshoot) the intricacies of these relationships rather than staying focused on your core business force. Consider credit card processing for example. While there is a general rule for how the process works, there are plenty of variations in addition to differing roles of participants in the same flow. Let s take a look at the payment ecosystem for a subscription business most of which takes place in a matter of seconds or minutes.

AT A GLANCE: THE PAYMENT ECOSYSTEM 2 Processing a Credit Card from purchase to payment Customer Merchant Recurly Gateway Processor Association Issuer Customer makes an online purchase receives the order info and uses Recurly to manage subscription billing stores the credit card information securely and passes the payment request to the gateway securely packages and sends the request to the processor sends the information to the proper card association will route the request to the proper issuer through its network approves (or denies) the transaction and returns the response back to the network is billed by the issuer on their monthly statement

AT A GLANCE: THE PAYMENT ECOSYSTEM 3 1. Customer makes an online purchase The entire process begins with the customer, who makes an online purchase by entering credit card information into an e-commerce site. Besides the credit card number, billing information can be entered as well. 2. Merchant receives the order info and uses Recurly to manage subscription billing For businesses with a recurring payments model (e.g. monthly subscriptions), the customer s credit card information is sent directly to the billing partner (e.g. Recurly), and not the merchant, reducing the merchant s PCI liability.

AT A GLANCE: THE PAYMENT ECOSYSTEM 4 3. Recurly stores the credit card information securely and passes the payment request to the gateway Recurly (e.g. billing partner) bridges the gap between your business (user accounts, product plans) and payment processing (card validation, securing financial data, invoicing, reporting). Recurly also provides services such as integration, gateway setup, PCI compliance, account management, invoice generation, user notifications, reporting, upgrades/ downgrades, and data portability. 4. Gateway securely packages and sends the request to the processor The payment gateway normalizes credit card data and then securely transfers information to the payment processor or acquiring bank. Acquirers need a payment processor to provide all of the software and systems in order to connect with the card associations and securely complete transactions. Next, the payment is routed to the optimal payment gateway based on a variety of transaction types.

AT A GLANCE: THE PAYMENT ECOSYSTEM 5 5. Processor sends the information to the proper card association While these associations aren t banks or issuers of credit cards or merchant accounts, they provide the network between banks to facilitate payments of a specific brand. They also function as a governing body of a community of financial institutions to support credit card processing and electronic payments. 6. Association routes the request to the proper issuer through its network (e.g. American Express, MasterCard, Visa) The payment brand sends your request to the card issuer (the card issuer is the bank that issued the card to the customer). Issuing banks pay acquiring banks for purchases that their cardholders make.

AT A GLANCE: THE PAYMENT ECOSYSTEM 6 7. Issuer approves (or denies) the transaction and returns the response back to the network Whether the issuer approves or declines the transaction, the response is sent to the payment brand. If approved, the issuer posts the transaction to the customer s account, and the merchant provisions the item or service to the customer. 8. Customer is billed by the issuer on their monthly statement At the end of the billing period, the customer is charged by the issuer with the amount appearing on the monthly statement. The funding and settlement process when money is deposited into a merchant s account for processed transactions can take up to two business days.

AT A GLANCE: THE PAYMENT ECOSYSTEM 7 Understanding Your Business Needs Companies should evaluate and choose the right billing partner. A good place to start is to find a partner who understands both payments and technology relevant to your company. Billing partners generally sit above payment gateways to bridge the gap between your business (user accounts, product plans) and payment processing (credit card validation, financial data accessibility, invoicing, reporting). Not all are created equal in terms of features and support, so having a clear understanding about specific business needs and requirements is a must. ABOUT RECURLY Recurly provides enterprise-class recurring billing management for thousands of subscription-based businesses worldwide. Contact our team today to see if Recurly is the right fit for your business. +1.844.732.8759 sales@recurly.com ^ Learn more at Recurly.com 2014 Recurly, Inc. All Rights Reserved.